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Give cities power to set a land transfer tax: Editorial

Ontario should give all communities in the province, not just Toronto, the right to charge a municipal land transfer tax.

Queen's Park is considering giving all municipalities in Ontario the power to levy a land transfer tax like the one Toronto has had since 2008. (Chris So / Toronto Star) | Order this photo

Sun., Nov. 1, 2015

News that Ontario is considering giving all municipalities power to levy a land transfer tax has roused predictable opposition from the real estate industry. A poll done for the Ontario Real Estate Association came to the readily foreseen conclusion that most Ontarians (89 per cent) don’t relish paying more tax.

Queen’s Park should nonetheless go ahead with such a change. The province is reviewing the Municipal Act, having set an Oct. 31 deadline for public comment. And this suggested reform makes sense.

Municipalities large and small are in dire need of additional revenue sources. Beset by crumbling roads, corroding bridges and leaky water systems, they face a dire infrastructure gap that even a promised infusion of new federal money won’t close.

There’s increasing pressure to expand public transit, house the homeless, and shelter new immigrants. Yet cities must rely on property tax and user fees to generate revenue — sources that are woefully inadequate to the task at hand.

Toronto is the only municipality in the province now allowed to charge a land transfer tax, and money from this source has been the salvation of the local budget since it was introduced in 2008.

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The tax rate varies and there’s a rebate for first-time home buyers. But, in general, a residence worth more than $400,000 is taxed at 2 per cent when sold. This municipal share comes on top of another 2 per cent traditionally charged by the province.

It’s projected to pump just over $430 million into Toronto’s coffers in the current year alone, and that’s likely an underestimate. Finding this amount through the city’s conventional revenue streams would certainly require a double-digit property tax hike and, very likely, a dramatic slashing of services.

Other mayors, quite understandably, have been eyeing the benefits of a land transfer tax. Urban advocates, including the Association of Municipalities of Ontario, say it’s only logical to give local governments across the province a consistent set of budget tools. And they stress that what’s being proposed isn’t an automatic imposition of a new tax. Rather it would give communities the option of going this route if it makes sense for them.

Queen’s Park should give municipalities that freedom. Realtors remain unconvinced, but their arguments against granting this power to cities are unconvincing.

According to the Ontario Real Estate Association, Toronto’s land transfer tax has been a disastrous mistake; without it, there could have been an additional 38,227 “housing transactions” over five years. It’s further argued that each transaction would have generated $55,000 in consumer spending on renovations, furniture and “fees to professionals,” and forgoing this opportunity has cost Toronto $2.3 billion in lost economic activity and 15,000 jobs.

Pity Canada’s largest city.

But beyond those earning a commission from real estate sales, most people aren’t particularly troubled that Toronto’s scorching real estate market could have sizzled even hotter.

If anything, Toronto’s experience shows that bringing in a land transfer tax hasn’t much hurt housing sales. They’re booming. And the local economy is doing quite well, too. That’s contrary to dire warnings before the tax was put in place, with realtors predicting “a disaster and a death blow to the condominium market,” and calling the new charge “a huge disincentive to own real estate.”

It’s true that cooler real estate markets in smaller cities may experience more noticeable impact from a municipal land transfer tax than has Toronto. But it should be up to the elected leaders of those communities to weigh their options and decide the right course. They best understand local priorities, including the degree to which having a new source of revenue is necessary to protect services and get vital work done.

There’s some consolation in the fact that in any given year the vast majority of a city’s residents wouldn’t pay any land transfer tax at all. Home buyers won’t be happy, to be sure. But any proposed “revenue tool” will generate discontent in some quarters.

The best tax, after all, is always the one that someone else is stuck paying.

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